Closing Costs When Buying Or Refinancing A Home
This is a detailed summary of costs you may have to pay when you buy or refinance your home. They are listed in the order that they should appear on a Good Faith Estimate you obtain from a mortgage lender. There are two broad categories of closing costs. Non-recurring closing costs are items that are paid once, and you never pay again. Recurring closing costs are items you pay repeatedly over the course of home ownership, such as property taxes and homeowner’s insurance. Some of the items that appear here do not traditionally appear on a lender’s Good Faith Estimate and lenders are not required to show all these items.
Non-Recurring Closing Costs Associated with the Lender
Loan Origination Fee - The loan origination fee is often referred to as points. One point is equal to one percent of the mortgage loan. As a rule, if you are willing to pay more in points, you will get a lower interest rate. On a VA or FHA loan, the loan origination fee is one point. Any additional points are called discount points.
Loan Discount - On a government loan, the loan origination fee is normally listed as one point or one percent of the loan. Any points in addition to the loan origination fee are called discount points. On a conventional loan, discount points are usually lumped in with the loan origination fee.
Appraisal Fee - Since your property serves as collateral for the mortgage, lenders want to be reasonably certain of the value and they require an appraisal. The appraisal looks to determine if the price you are paying for the home is justified by recent sales of comparable properties. The appraisal fee varies, depending on the value of the home and the difficulty involved in justifying value. Unique and more expensive homes usually have a higher appraisal fee. Appraisal fees on VA loans are higher than on conventional loans.
Credit Report - As part of the underwriting review, your mortgage lender will want to review your credit history. The cost of running the credit report can vary and is included in closing costs.
Lender’s Inspection Fee - You normally find this fee on new construction and is associated with what is called a 442 Inspection. Since the property is not finished when the initial appraisal is done, the 442 Inspection is done when the building is completed and verifies that construction is complete with carpeting and flooring installed.
Mortgage Broker Fee - About seventy percent of loans are originated through mortgage brokers and they will sometimes list your points in this area instead of the Loan Origination Fee category. They may also add any broker processing fees in this area, so you clearly understand how much is being charged by the wholesale lender and how much is being charged by the broker. Wholesale lenders offer lower costs/rates to mortgage brokers than you can obtain directly, so you are not paying extra by going through a mortgage broker.
Tax Service Fee - During the life of your loan you will be making property tax payments, either on your own or through your impound account with the lender. Since property tax liens can sometimes take precedence over a first mortgage, it is in your lender’s interest to pay an independent service to monitor property tax payments.
Flood Certification Fee - Your lender must determine whether or not your property is located in a federally designated flood zone. This is a fee usually charged by an independent service to make that determination.
Flood Monitoring - From time-to-time flood zones are re-mapped. Some lenders charge this fee to maintain monitoring on whether this re-mapping affects your property.
Other Lender Fees
We put these in a separate category because they vary so much from lender to lender and cannot be associated directly with a cost of the loan. These fees generate income for the lenders and are used to offset the fixed costs of loan origination. The Processing Fee mentioned above can also fall into this category, but since it is listed higher on the Good Faith Estimate Form we did not also include it here. You will normally find some combination of these fees on your Good Faith Estimate.
Document Preparation - Before computers made it easy for lenders to draw their own loan documents, they used to hire specialized document preparation firms for this function. This was the fee charged by those companies. Nowadays, lenders draw their own documents, but this fee is charged on all loans.
Underwriting Fee - Once again, it is difficult to determine the exact cost of underwriting a loan since the underwriter is usually a paid staff member.
Administration Fee - If an Administration Fee is charged, you will probably find there is no Underwriting Fee. This is not always the case.
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